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Opinion: what does Louis Dreyfus see in Olam?

Features24 Sep 2010by Newsdesk

Louis Dreyfus's look east, in its plan to merge with Singapore-listed Olam International, looks as much down to supplies of money as commodities.

The plain vanilla option for the French trading house, in seeking a merger partner, would have been to opt for one of its Western rivals. That would have allowed it to implement the textbook deal benefits achievable from cutting out duplicated costs - more easily done between businesses with overlapping geographies.

But the prospective Olam deal looks about more than cost synergies.

If Louis Dreyfus's $460m purchase last year of a stake in Santelisa Vale, the Brazilian ethanol and sugar producer, is anything to go by, the 150-year-old crop merchant sees its future in production as much as trading.

Olam could provide that strategy with a double dose of help.

Deal hunger

The first is through the breadth of Olam's operations. Its vision is based around the full supply chain, from plantation to plate.

Beyond traditional trading operations, the group packages foods and produces commodities such as almonds, palm oil and rubber.

It has just completed the takeover of New Zealand Farming Systems Uruguay, a dairy producer.

Indeed, its rapid growth to a business with a $5bn stockmarket value – and its confidence in a target of doubling shareholder value every three years - has been built largely on acquisitions.

Deep Asian pockets

Which is where Olam can also lend Louis Dreyfus a big hand – in raising cash.

Olam lists 16 main deals in its last three financial years, from West African flour mills to Australian almond groves to a stake in PureCircle, the London-listed alternative sweeteners group.

Certainly, Louis Dreyfus could do with such rich and varied acquisition experience, if it is to progress a business plan which may, in essence, turn itself into Olam's big brother.

But it could do too with the rich pools of Asian money that could be opened up by linking with Olam, whose investors include huge Singapore wealth fund Temasek.

Indeed, that is a major reason why Louis Dreyfus is interested in a tie-up, according to a person familiar with the situation.

Clash of egos

The merger faces plenty of hurdles yet. Not least the need to sort out who's in charge of what.

Louis Dreyfus is already home to two sometimes clashing figures – chairman Jacques Veyrat and Margarita Louis-Dreyfus, the face of the founding family.

A merger with Noble Group, which Agrimoney.com understands that Louis Dreyfus has also considered, would offer an advantage on this score, in that its guiding light, Richard Elman, is winding down his role.

Still, whatever course Louis Dreyfus takes, it has already provided a fillip to farmers, in showing where the balance of power is shifting as the world attempts to feed an ever-growing population.